Retail Revolution

Countdown to India's retail revolution

By Toby Poston BBC News business reporter:

The economy is growing by 8% a year, its stock market rose by nearly 40% in 2005 and foreign investors are flooding in. There are about nine million small grocery shops in India
Whichever way you measure it, business in India is booming. And as the economy grows, so does India's middle class.

It is estimated that 70 million Indians in a population of about 1 billion now earn a salary of $18,000 a year, a figure that is set to rise to 140 million by 2011. Many of these people are looking for more choice in where to spend their new-found wealth.

Protectionist:

The Indian retail sector is now worth about $250bn (£140bn) a year, but it is heavily underdeveloped. Well over 95% of the market is made up of small, uncomputerised family-run stores. Now there are finally signs that the Indian government is dropping its traditionally protectionist stance and opening up its retail market to greater overseas investment. Last month it eased restrictions on foreign investment, allowing overseas retailers to own 51% of outlets as long as they sell only single-brand goods.

For the first time, chains like McDonalds, Marks & Spencer, Body Shop and Ikea can, if they want to, open and control their own operations in India. Previously, many of them had gone down the path of working with franchise partners, a policy followed by M&S which supplies clothes to eight "Planet Sports" stores. They look like M&S stores on the inside, but they are owned by local retailers, and the UK retailer has no plans for that to change.

"This is now our policy for overseas expansion," said a spokeswoman.

"We rely on franchisees who know their local market, it's working very well in India."

Stiff opposition:

But allowing in the big multi-brand, international retail groups like Wal-Mart, Tesco and Carrefour was considered a step too far, says Kamal Nath, India's Minister of Commerce and Industry.

"We have announced a partial opening of our retail market, to single-brand retailers," Kamal Nath told BBC News.

"But beyond that, we need to find a model that doesn't displace our existing retailers."

The Indian government has been conducting an impact analysis of how the introduction of supermarket chains like Tesco and Carrefour would hit its retail sector.
Further retail reforms are likely to be opposed by the Communist Party, a key ally of the Congress Party-led government.

Many politicians still feel they have a duty to protect the livelihoods of the small shopkeepers they represent. But the government does realise that foreign investment is badly needed to provide the infrastructure - the warehousing, distribution and processing operations - that are needed to upgrade India's chaotic retail industry. An estimated 50% of the country's fruit and vegetables rot by the roadside before they reach market.

New jobs:

It's a challenge that some of India's own industrial conglomerates are taking up. Last January, Reliance Industries said it was investing $5bn in creating a chain of hypermarkets and back-end retail services. Its plans called for the creation of a whole new supply chain, with new stores, cold storage facilities, food processing units and contract farming. It will initially launch pilot projects in three Indian states before potentially rolling the strategy out to 500 Indian towns and cities.

The investment could create up to 400,000 jobs, it believes. Elsewhere, consumer goods group ITC has set up its "e-Choupal" scheme to try and improve the productivity of farmers that supply its food processing operations. It has built internet kiosks in rural villages to help give farmers access to the latest information on things like the weather, current market prices and what foods are in demand.

"India's greatest need is to take the benefit of retailing to the doorstep of the farmer," ITC chairman YC Deveshwar says.

"There is such potential if we can invest in greater food processing. India has the most irrigated farm land in the world."

Tentative steps:

So while Indian businesses forge ahead with their own plans to take a big share of Indian consumers' spending, and the Indian government slowly refines its retail roadmap, where does that leave supermarket giants such as America's Wal-Mart, Germany's Metro and Britain's Tesco? For years, their plans for domination of the Indian retail scene have been sitting gathering dust.

German store group Metro has made tentative steps, via its chain of wholesale cash & carry centres in cities like Bangalore. About 90% of the goods it offers come from local producers and suppliers, which could give it a head-start if the rules on selling to individual shoppers are relaxed in the future.

Tesco and Wal-Mart also have a limited presence in India. German retailer Metro has opened cash & carry stores in IndiaBut they are not selling anything to anyone: Wal-Mart's 80 staff in India are there to look after the retail behemoth's purchasing in the region.
Even so, it has been lobbying the Indian government to allow it to open an office in Bangalore where it could research the Indian retail market and the possibilities for developing its operations there in the future.

Bangalore is also home to Tesco's Indian outpost, an office which looks after some of its back-office finance operations. It says it has no firm plans for the region - it will not open up a wholesale operation like Metro - but admits it is watching for any further relaxation of retail regulations.

Inevitable:

Most Indian business experts think it will not have to wait long.
"The recent move was just the first step," says Dr Mohan Kaul, chairman of the Commonwealth Business Council.

"Maybe this time next year there will be a further announcement.

"It's inevitable, there is no way that an open market for retailing will be stopped."

Retail Updates

Mall or nothing for India's elites

By Sunita Nahar BBC News, Calcutta:

The City Centre mall was opened more than a year ago in eastern Calcutta. The malls are changing the way Indians shop.With its shops, restaurants, cafes and multiplexes, it has become something of a landmark in the city.

Glass facades of fast food outlets and designer shops beckon you to share what the mall advertises as a world-class experience in shopping. During the weekends, families flock to the mall and spend the whole day there.

For Mittali Srivastava, a housewife with two children, it is a sign of progress and development.
"The service is good, it is convenient and definitely the future India," she says.

"Globalisation has arrived... India is catching up with the rest of world"

"I can bring my whole family with me.

"I can shop, take my kids to see a movie, let them play in the leisure zone, have lunch with friends. And I can do it all under one roof"

"The choice of designer labels is great and there's even a cyber cafe," he says.

"Globalisation has arrived. India is catching up with the rest of world."

Western habits :

Ms Srivastava and Mr Ghosh are happy with their mall experience and would like to see the huge, unorganised retail sector in India - which includes hundreds of thousands of pavement sellers - brought under a more organised umbrella.

We'll all soon be wearing denim jeans and white T-shirts
Fashion designer Padmaja Krishnan

But Padmaja Krishnan, a fashion designer, believes malls will destroy the Indian way of doing business.
She says she prefers going to her local fruit and vegetable sellers on the pavement near her home.

Nothing is marked or labelled, everything is fresh and the best bit is the bargaining.
"With the malls, we're seeing fixed prices and the standardisation and westernisation of products," she says.

"We'll all soon be wearing denim jeans and white T-shirts."

Curse or blessing?

The debate over the future of India's retail sector has arisen because people are questioning whether the public land used for these malls, the ultimate symbol of consumerism, is being put to good use.

Critics argue they have done nothing to change many people's lives.
In fact, because the malls are offering attractive prices, they are squeezing out the small traders who can no longer afford to compete - thereby sharpening the divide between the rich and poor in India.

At the moment, there are more than 100 malls in India.

By 2007 there will be 300, according to the International Council of Shopping Centres.
Economists say the boom is being driven by demand, the liberalisation in trade and because people in India have more spending power.

They say the march of market forces is inevitable, and as in the US and Europe, many small traders will lose their livelihood if the government does not control the situation.

Retail Updates

Wal-Mart and Bharti in India deal

The outlets will sell fruit and vegetables and other itemsA joint venture between Wal-Mart Stores and India's Bharti Enterprises has been finalised, the pair said on Monday.
Bharti Wal-Mart Private Limited will operate wholesale cash-and-carry and supply chain operations in India.

Opening 10 to 15 outlets by 2015, it plans to employ about 5,000 people selling groceries, consumer goods, fruits and vegetables. India's retail industry is worth $300bn (£148bn) a year and has attracted the interest of international retailers. Large overseas retailers are currently barred by law at the retail level in India, but not in the wholesale market.

Tesco, France's Carrefour, and Germany's Metro are all big names who have expressed an interest in establishing operations in India.
The first Bharti Wal-Mart Private Limited cash-and-carry store is set to open by the end of 2008.

"This venture promises to bring great value to millions of farmers, artisans, small manufacturers and retailers across India," said Sunil Bharti Mittal, chairman and group CEO of Bharti Enterprises.

"We are pleased to be a partner in developing this sector which is set to become a significant engine of India's economic growth."

Retail Updates

Wal-Mart and Bharti in India deal

The outlets will sell fruit and vegetables and other itemsA joint venture between Wal-Mart Stores and India's Bharti Enterprises has been finalised, the pair said on Monday.
Bharti Wal-Mart Private Limited will operate wholesale cash-and-carry and supply chain operations in India.

Opening 10 to 15 outlets by 2015, it plans to employ about 5,000 people selling groceries, consumer goods, fruits and vegetables. India's retail industry is worth $300bn (£148bn) a year and has attracted the interest of international retailers. Large overseas retailers are currently barred by law at the retail level in India, but not in the wholesale market.

Tesco, France's Carrefour, and Germany's Metro are all big names who have expressed an interest in establishing operations in India.
The first Bharti Wal-Mart Private Limited cash-and-carry store is set to open by the end of 2008.

"This venture promises to bring great value to millions of farmers, artisans, small manufacturers and retailers across India," said Sunil Bharti Mittal, chairman and group CEO of Bharti Enterprises.

"We are pleased to be a partner in developing this sector which is set to become a significant engine of India's economic growth."

Retail Updates

India to liberalise retail market

The Indian retail market is estimated to be worth $250bnForeign retailers will be able to own their own stores in India for the first time as part of a major government liberalisation of business. Until now, foreign businesses have only been allowed to operate franchises for fear they would harm indigenous firms.

But new regulations will allow foreign retailers to own 51% of outlets as long as they only sell single-brand goods. The competition drive, also affecting mining, energy and transport, has been opposed by the Communist Party.

Job creation:

Nevertheless, the Indian government is determined to press ahead with the reforms which it says will create jobs, while giving sufficient protection to Indian businesses.
This is aimed at attracting investment, technology and best global practices
Kamal Nath, Indian trade minister. Experts believe that retailers such as Nike, Reebok and Marks & Spencer could take advantage of the changes to step up their investment in India, the world's eighth largest retail market.

Trade minister Kamal Nath said the reforms were the first changes to laws governing foreign investment in 15 years.

"This is aimed at attracting investment, technology and best global practices and catering to the demand of branded goods in India," he said.

Under the new regime, only firms selling single-brand products will be able to directly operate their own stores. This could prevent supermarket giants such as Wal-Mart and Tesco which sell an array of goods from extending their presence in India.

Concerns:

The Communist Party, a coalition partner in the Congress Party-led government, said the changes could threaten thousands of small retail concerns.

"We have been opposing it," said D. Raja, the Party's secretary, who warned that the changes would eventually lead to full liberalization.

"I do not know why the government has to take such a decision."

Increased foreign investment will also be permitted in other sectors of the economy including diamond and coal mining, power trading, rubber processing and pipeline manufacturing.
Foreign firms will also to play a greater role in building of new airports, supporting the rapid development of the country's aviation industry.

Retail Updates

India's boom time for the few

By Mark Tully Former BBC India correspondent:

Sixty years after Partition and the violence and upheaval which followed, India has begun to prosper as the world's largest democracy. Mark Tully was the BBC's India correspondent for 22 yearsWhen I came to India in 1965, I was surprised to find that diplomats, at the end of their postings, would sell all the possessions they had imported including partly used lipsticks and second-hand underwear.

The shops only stocked Indian goods and they were distinctly second class.
I still remember the pain of shaving with an Indian razor blade and being taught how to remove the glycerine from Indian beer. The trick was to turn the bottle upside down in a glass and an oily liquid would ooze out clouding the water.

Now I shave in great comfort with Indian blades and pour beer straight into my mug.
Raising the siege. When I went back to Calcutta, my early childhood home, to indulge in a bit of nostalgia, I found what had once been the commercial capital of India dying on its feet. One British town planner had forecast it would be the first city ever to collapse.

India's Tata Steel owns the Anglo-Dutch steel manufacturer Corus:

Trees were growing out of the offices of some of the once-great names in British commerce. At least Gillanders House, where my father had worked, was still reasonably well preserved but his firm was a pale shadow of what it had been in his day.
Now Calcutta is enjoying something of a boom and a whole new city is springing up on the way to the airport.

I once complained to an Indian ticket inspector that I had paid a surcharge to travel on a super-fast train, which was not very fast. He corrected me saying, "It is a super-fast train, it's only going slowly."

For years the Indian economy used to chug along at what was known as the Hindu rate of growth of 3%, with perhaps a little plus. Now it clips along at 8-plus%, which is by any standards fast, if not super-fast.
All this has been brought about by the unscrambling of what was known as the licence-permit Raj.

That was a siege economy, which kept out all foreign competition to India's nascent industry.
But in the name of allocating scarce resources, one of which was power, bureaucrats - known as the "abominable Indian no-men" - were also empowered to prevent competition within India.

No-one could start manufacturing without a licence given by the bureaucrats, and existing manufacturers would bribe them to refuse licences for potential competitors.
India abroad. India started to dismantle the wall it built around its economy when in 1991 it faced bankruptcy, and the International Monetary Fund demanded the reform of the licence-permit Raj as the price for bailing the country out.

Some shopkeepers are against big foreign stores moving to India:

The demolition has released India's remarkable entrepreneurial talent. America has coined a new word - "Bangalored" - to describe the fate of the large number of IT employees who lose their jobs to India's IT capital, Bangalore. The big international names in the motor industry now have plants here and they are all being given a good run for their money by cars designed as well as made in India.

Indian companies are now taking over foreign companies like the Anglo-Dutch steel manufacturer Corus. But international businesses complain that the demolition job has not been completed. Foreign bankers, insurers, retailers, and manufacturers compare the restrictions India still imposes unfavourably with the freedom they enjoy in China.
India argues its specific political and economic problems mean that it must retain freedom to direct its economy, and to control the market.

Retail is a good example:

The government rightly fears the political impact of destroying the livelihood of the millions of small shopkeepers who dominate the trade if Tesco and Wal-Mart, who are knocking on the door, are allowed in and given free rein. India is also a land of small farmers and they cannot be left to fend for themselves against farmers in other parts of the world with their giant acreage farmed by one man and a tractor.

Left out:

The biggest problem for India is that the rapid economic growth has only led to stunning changes in the lifestyle of the rich and the middle classes. There is still widespread poverty in the cities as well as the countryside.

Many economists argue that the present top-down economic growth will never trickle down to the poor and so the economy needs to be directed more towards them. The trouble is that the direction has to be done by the government and that means the same "abominable no-men" who created the nightmare of the licence-permit Raj.

No matter how many arguments there are for the Indian train going at its own speed there can be no argument for allowing them to be on the footplate, driving the engine.

Retail Updates

Bharti in $2.5bn retail expansion

Family-run firms dominate India's retail marketIndian conglomerate Bharti Enterprises is to pump $2.5bn (£1.28bn) into expanding its retail business. Bharti, which recently tied up with US group Wal-Mart to launch Indian-based stores, said retail would be its "big focus" for the next eight years.

The group plans to open stores in all Indian cities with a population of one million or more.
More disposable income from the middle classes has boosted India's economy, though small firms dominate retailing.

Retail boom:

"After revolutionising the Indian telecom sector, retail will be the next big focus area for Bharti," said the firm.

Under its deal with Wal-Mart, Bharti will focus on running the stores while Wal-Mart will handle the supply side of the operation.
The Indian conglomerate operates in a range of areas, from commercial agriculture, insurance and software to telecoms, in which it control's the nation's leading mobile operator - Bharti Airtel.

Organised retailing represents only 3% to 5% of Indian retailers while family-run enterprises represent the vast majority of the market. Various industry estimates put Indian retail spending at $300bn each year, with the figure set to double by 2015.

Other firms have also seen the potential for retailing growth in India, such as the private company Reliance which is launching a supermarket chain called Reliance Fresh as part of its wider growth plans.